Cashback is the reigning king of Indian e-com marketing. While discounts attract shoppers, there is little that they do for customer retention.For Bhumika Grover, it was never a choice between the ‘Big Billion Days’ of Flipkart or Amazon’s ‘Great Indian Festive Sale’ in the run-up to Diwali. Even the ‘Electronics Monday’ sale by Snapdeal was not captivating enough.

“I knew I would have got some amazing discounts, but I wanted something extra,” says the 33-year-old young designer, who had been planning to upgrade her television for the last few months. Grover’s ‘extra’ moment came when payments and ecommerce services provider Paytm rolled out an ‘up to’ 100 per cent cashback Diwali campaign on November 3.

With a maximum retail price of Rs 77,900, a 48-inch full HD LED Samsung television was available at a selling price of Rs 63,371, thanks to a 20 per cent odd discount. A mouthwatering deal indeed, but it didn’t end there. Grover may have perhaps got a similar discount at a few other etailers, too; what she wouldn’t have got was over Rs 10,000 cash back in her mobile wallet, on top of the discount. “Cashback is like icing on the cake. And this icing never melts,” says Grover, who shops only when there’s a tempting cashback offer. “If a discount is value for money, cashback is double the value,” she grins.

As round-the-year discounts — at times as high as up to 80 per cent — become par for the course in luring polyamorous buy-ers in a hyper-competitive ecommerce market, a raft of etailers such as Paytm are betting big on cashbacks to woo consumers with a fresher, juicer carrot.

A cashback, quite simply is a form of incentive over and above the discount price offered to buyers as a refund in their mobile wallets which they can use to either shop for products or for any other services; these include paying utility bills, and for mobile and data card recharges. While buyers have more cash in hand to shop, sellers get a chance to get another slice of the consumer’s wallet.

Retention Strategy

“Cashback is the reigning king of Indian ecommerce marketing,” says Saurabh Vashishtha, vice-president, business, Paytm. While discounts attract shoppers, there is little that they do for customer retention. Between three top players, a consumer will identify the platform offering maximum rebate and shop there. However, there is nothing to ensure that this transaction moves on from being a one-time interaction to something more permanent.

Vashishtha adds that the cashback scheme on Paytm has a further advantage vis-à-vis other online marketplaces. “Unlike other platforms where a cashback earned on a purchase must necessarily be used for another similar purchase, on Paytm users have myriad possibilities for using that cash, he contends. “The second transaction could be need-based or an impulsive buy but the chances of it taking place are almost 100 per cent,” he claims.

Vashishtha’s confidence is borne out by Abhishek Pandey and Shivani Gupta. The husband-wife duo in Delhi visited GrabOn, an online coupon and deal site, bought grocery worth Rs 15,000 from PepperTap, an online grocery app, and paid the amount from their Paytm mobile wallet. To their surprise, the duo got a cashback of Rs 5,000 and now plans to shop more by using the windfall. Gupta, a 26-yearold homemaker, will buy apparel with that from Kaaryah, a brand of western, noncasual wear for women. “This is the best thing about cashback.

The shopping never ends as your wallet never gets empty,” she says. Her husband nods in agreement. “Cashback saves me from giving money to my wife,” he says cheekily.

The focus of the cash-flushed ecommerce players, who have tried every trick in the book to acquire more customers, has now shifted a gear — from wooing to retaining them, and ensuring they come back again and again. Retail analysts point that on an etailing landscape dotted with promiscuous, deal-hunting buyers, cashback stands a better chance than discounts in instilling some sense of loyalty in consumers and plugging the ‘leaking bucket’ problem of acquiring and losing users quickly.

Arvind Singhal, founder of consultancy firm Technopak, says disloyalty is inevitable in online shopping simply because most of the products consumers want are freely available, and they will buy them from the marketplace that’s offering the best deal. However, this doesn’t guarantee repeat buying nor does it promise brand allegiance. The muted success of couponing (redemption of a coupon for a rebate on a purchase) in India bears testimony to this fact, he says.

“Cashback is potentially a better way of engaging with consumers. It’s like building a loyalty programme in an indirect manner,” reckons Singhal. In a recent study, industry body Assocham said online sales would cross Rs 52,000 crore during the festive season, which goes on till December-end. The study added that ecommerce sales would register a five-fold increase this festive season over the 2014 corresponding period.

Though it’s too early to judge the success of cashback, for the time being it seems that it’s doing its bit to spur online sales.

Take, for instance, Smita Khanna who bought an Apple MacBook Pro via CashKaro, a cashback and coupons site. The 40-year-old, who works in an MNC in Gurgaon, got a cashback of over Rs 12,000 this festive season. “I started shopping online last year,” says Khanna, adding that discounts undoubtedly tempt a buyer but it’s cashback that transforms that temptation into impulsive buying. “If you have extra money in your account, won’t you in agreement. “Cashback saves me from giving money to my wife,” he says cheekily.

The focus of the cash-flushed ecommerce players, who have tried every trick in the book to acquire more customers, has now shifted a gear — from wooing to retaining them, and ensuring they come back again and again. Retail analysts point that on an etailing landscape dotted with promiscuous, deal-hunting buyers, cashback stands a better chance than discounts in instilling some sense of loyalty in consumers and plugging the ‘leaking bucket’ problem of acquiring and losing users quickly.

Arvind Singhal, founder of consultancy firm Technopak, says disloyalty is inevitable in online shopping simply because most of the products consumers want are freely available, and they will buy them from the marketplace that’s offering the best deal. However, this doesn’t guarantee repeat buying nor does it promise brand allegiance. The muted success of couponing (redemption of a coupon for a rebate on a purchase) in India bears testimony to this fact, he says.

“Cashback is potentially a better way of engaging with consumers. It’s like building a loyalty programme in an indirect manner,” reckons Singhal. In a recent study, industry body Assocham said online sales would cross Rs 52,000 crore during the festive season, which goes on till December-end.

The study added that ecommerce sales would register a five-fold increase this festive season over the 2014 corresponding period.

Though it’s too early to judge the success of cashback, for the time being it seems that it’s doing its bit to spur online sales.

Take, for instance, Smita Khanna who bought an Apple MacBook Pro via CashKaro, a cashback and coupons site. The 40-year-old, who works in an MNC in Gurgaon, got a cashback of over Rs 12,000 this festive season. “I started shopping online last year,” says Khanna, adding that discounts undoubtedly tempt a buyer but it’s cashback that transforms that temptation into impulsive buying. “If you have extra money in your account, won’t you shop,” she asks, rhetorically.

‘A Boon to Womankind’

Shopaholic Samta Lakhani, who works in an MNC in the Delhi suburb of Noida, declares that cashback is “God’s biggest boon to womankind”. She bought an iPhone 6s (16GB) from ShopClues using the MobiKwik mobile wallet and got a cashback of over Rs 7,500. “It’s opium for shopaholics.

It just makes you give in to the temptation to shop,” says Lakhani.

For online marketplace ShopClues, the idea behind launching a cashback scheme is to enable customers to shop more on its platform with added rewards.

“We want to double our customers’ joy this Diwali. Our cashback offers across unstructured categories are meant to push up festive sales,” says Nitin Agarwal, assistant vice-president, marketing, ShopClues. He contends that the etailer wants to make not just its loyal shoppers feel special, but first-timers as well.

Even a relatively new startup like Kaaryah, which was funded by Ratan Tata a few months back, is hopping onto the cashback bandwagon. Nidhi Agarwal, founder of the fashion portal, explains that cashback has allowed her to enable brand activation in a cost-prudent manner.

“While discounting operates in spurts, cashback has proven consistency in terms of traction,” she says, adding that it allows customers to experiment with new brands and products for free. While discounts are a way to increase volume sales, cashbacks not only drive volume but also provide tangible rewards (value), avers Agarwal.

Businessman Sanjeev Chhabra would agree with the tangible nature of cashbacks.

Chhabra used the services of UrbanClap, a home services startup, to get his home cleaned before Diwali, and bought gifts for his relatives and friends from ShopClues. For a shopping amount of Rs 20,000, the 49-year-old in Mumbai got a cashback of Rs 5,000. “I didn’t have to make an effort to earn or save money.

It’s automatic,” says Chhabra. But the businessman is concerned about the money being burnt by ecommerce players in hefty discounts and cashbacks. “I don’t know how are they doing it,” he wonders.

No Looking Back

Shoppers of course are in no mood to bother about the financial health of the etailers — not when the going is good for them. Sagar Chaterjee in Bengaluru is one such consumer who’s making hay whilst venture capital shines on startups.

The 38-year-old bought apparel worth Rs 15,000 from fashion etailer Jabong and ended up reeling in Rs 7,500 as cashback. “If ecommerce players are giving us more money to shop, then why should I complain,” he asks. A discount hunter till a year back, Chaterjee now swears by sites offering cashbacks, albeit for a different reason. “I am not used to saving for shopping. Now I don’t have to save at all. It’s there in my wallet.”

Investors, for their part, are also not complaining. They see immense business sense in the way ecommerce players are splurging money in acquiring consumers and achieving scale. The etailers, they aver, are only playing by the rules of the game, which is customer acquisition at whatever cost.

“There is a method in their madness,” says Sasha Mirchandani, managing partner and founder of Kae Capital, a venture capital firm which has invested in startups like HealthKart, Truly Madly and MapMyTalent. “Entrepreneurs know what they are doing,” asserts Mirchandani.

Mirchandani maintains that while in the short run it’s only consumers who win, in the long run the ecommerce players would reap the rewards. “And those with their own payment wallet stand to gain the most,” he says.

Agree marketing experts, who feel that the strategy of owning a mobile payment wallet makes life easier for ecommerce players in multiple ways and would be a prime differentiator in future. For one, in the online marketplace where margins for ecommerce players are wafer-thin if not absent, having one’s own payment wallet saves precious commission which otherwise would have gone to the outsourced payment gateway provider, points out Abraham Koshy, professor of marketing at IIM-Ahmedabad. Second, it enables ecommerce players to engage more with the consumers for a longer period of time, which in turn ensures repeated purchases. And, third, the money invested by companies in rolling out a cash-on-delivery model, which adds to the cost overrun of the startups, will significantly come down, says Koshy.

This, in turn, will ensure moving rapidly towards profitability, perhaps the biggest concern with all the ecommerce players in the country, he adds.

That also explains the strategic trigger for Snapdeal buying mobile top-up firm FreeCharge for reportedly Rs 2,400 crore in April this year.

Four months after the acquisition, Snapdeal and FreeCharge jointly launched a mobile wallet. In fact, cashback seems to be the flavour of the season. Online travel aggregator Yatra has rolled out a promotional offer of 100 per cent cashbacks on tickets booked through its app. Chinese handset maker Xiaomi has announced cashback offer during this festive season.

And if you thought that it’s only ecommerce players who are dangling the carrot of cashback, then here’s a reality check: Last month, Tata Motors launched up to 100 per cent cashback offers on its range of cars including Safari Storme, Bolt, GenX Nano and Indigo.

Mahindra & Mahindra too has been running a cashback scheme for its two-wheelers. However, all are not enthused by cashback strategy. Rahul Narvekar, chief executive, IndianRoots, an online marketplace for Indian fashion, believes that success stories around cashback promotion are not indicative of business model success for an ecommerce company since it does not imply an increase in revenues, but only an increase in the number of transactions. Cashback works better for horizontal players such as Flipkart, Amazon or Paytm, where the customer can use the cash that’s come back to her to buy a variety of services and products across categories, admits Narvekar. However, for a vertical player, its success remains dubious.

IndianRoots tried a 100 per cent cashback offer in July this year but it did not work as well as expected, he concedes. “A vertical player like IndianRoots needs to be cognizant of what value we can offer to customers, if any, through a cashback programme,” says Narvekar.

Ashok Reddy, GrabOn too feels that while the biggies like Paytm and Snapdeal are moving to a cashback model, it’s not going to become the flavour of the season. “Other brands will continue with their business models,” he avers, adding that most of the players won’t tweak their businesses just because their competitors are offering cashback.

Tell this to Vashishtha of Paytm and he would beg to differ. So far cashback has struck the right chord with Indian audiences, he says. But to truly leverage its power, companies have to ensure that customers get true, transparent value, he adds. “Discounts and cashbacks that are mere delusions will not only fail to attract customers but will also lead to a loss of trust which can be highly detrimental to the long-term health of any venture,” he says.

Cashback that offers true value-for-money, he concludes, with the potential for customer retention is the new gamechanger in Indian ecommerce.

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